METC vs Health Spending Account: Which Saves You More Money in Canada?

By Frontier Team•February 10, 2026•4 min read

If you run an incorporated business in Canada, you have two main ways to get a tax break on health expenses: the Medical Expense Tax Credit (METC) and a Health Spending Account (HSA). They both reduce what you pay, but they work very differently -- and one almost always saves you more.

How the METC Works

The METC is a non-refundable tax credit you claim on your personal tax return. You can only claim medical expenses that exceed the lesser of 3% of your net income or approximately $2,759. After that threshold, you get a credit at the lowest federal tax rate -- about 15% of the amount above the floor.

That means if you have $4,000 in medical expenses and a net income of $80,000, your threshold is $2,400 (3% of $80,000). You can claim $1,600 above the threshold, and your federal credit is roughly $240. You still paid the full $4,000 out of pocket with after-tax money.

How an HSA Works

With an HSA, your corporation pays for medical expenses directly. Those payments are 100% tax-deductible for the business and 100% tax-free for the employee. There is no threshold, no floor, and no waiting until tax time. You submit a receipt, and you get reimbursed.

A Real Dollar Comparison

Let us say you are an incorporated professional in Ontario with $90,000 in net income and $4,000 in medical expenses.

With the METC:

  • You pay $4,000 from after-tax personal income
  • To have $4,000 after tax, you actually need to earn about $5,400 pre-tax (at a 26% combined rate)
  • Your METC credit: ($4,000 -- $2,700 threshold) x 20% = roughly $260
  • Real cost to you: about $5,140

With an HSA:

  • Your corporation pays $4,000 plus a small admin fee (roughly $440)
  • The full $4,000 is deductible, reducing corporate taxable income
  • You receive the reimbursement tax-free
  • Real cost: about $4,440

That is roughly $700 saved by using an HSA instead of the METC. And the more you spend on health expenses, the bigger the gap becomes. For a deeper look at the numbers, see our HSA tax savings calculator.

The No Double-Dipping Rule

You cannot claim the same expense through both an HSA and the METC. If your business already reimbursed a medical expense through your HSA, you cannot also claim it as a personal medical expense on your tax return. However, any expenses you pay out of pocket that were not covered by your HSA can still be claimed under the METC. For more details on how this works, read Are Health Spending Accounts Taxable in Canada?

When the METC Still Makes Sense

The METC is not a bad option for everyone. If you are a sole proprietor without any employees, you may not qualify for an HSA because the CRA requires a legitimate employer-employee relationship. In that case, the METC is your best available tax break for medical expenses. For a full breakdown of the credit itself, check out our guide to the Medical Expense Tax Credit.

The Bottom Line

For incorporated business owners in Canada, an HSA saves significantly more money than the METC. You get a full deduction on every dollar instead of a partial credit on expenses above a threshold. The math is clear -- and it gets better the more you spend on health care.

If you are ready to stop leaving money on the table, Frontier Health makes it simple to set up an HSA for your business. No setup fees, no contracts, and reimbursements within 48 hours.

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